Undead Tepco echoes U.S. housing zombies

Tokyo Electric Power is looking like an undead relative of America’s housing zombies. Shareholders of the Japanese utility meeting on Tuesday have seen the value of their holdings tumble 85 percent since the March earthquake caught them unawares, similar to the way the U.S. housing crunch eviscerated Fannie Mae stock. Like those companies, it’s questionable whether Tepco’s next chapter involves public shareholders at all.

Tepco’s mess echoes that of Fannie and Freddie in significant ways. The utility — valued at 3.4 trillion yen ($42 billion) in early March, but now worth less than a sixth of that — is a central part of the industrial infrastructure underpinning Japan’s economy. The two U.S. mortgage giants boosted, and still support, America’s huge housing sector — though their shares, once worth well over $100 billion combined, are now essentially worthless.

Both Tepco and the U.S. government-sponsored enterprises dominated their markets, were overseen by feckless regulators and became complacent before disaster struck. They operated with inadequate risk management, contingency planning and capital regimes. Both were also widely held by retail investors as safe stocks for which a precipitous plunge in value was unthinkable — something that could add spice to Tepco’s meeting.

The stories also, of course, diverge. The collapse in Fannie and Freddie’s share prices culminated in an open-ended government rescue in September 2008 that ensured the companies’ creditors were fully protected. With Tepco, the Japanese government has said it will help with the trillions of yen the company will pay out in compensation, but that assistance looks likely to be capped. Bankruptcy isn’t off the table. Nor is the idea of leaning on banks to write off loans. So Tepco’s credit is under a giant cloud as well: the cost of insuring against default implies it’s riskier to lend to Tepco than to Pakistan or Portugal.

That uncertainty makes it harder for Tepco’s shareholders to foresee their fate. That, anyway, looks to be in the hands of Japan’s lawmakers. Nearly three years on, their American counterparts can’t figure out how to restructure their own oversized institutions which, though unsustainable in their current form, are too central to a sluggish economy to risk radical change. It’s not hard to imagine a zombified Tepco roaming in similar fashion, subsisting on what’s left of its shareholder value.

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